Aqueduct President & CEO, Manak Ahluwalia shares his insight with CRN into the state of the economy and the impact it is having on information technology spending and the solution provider landscape.
Aqueduct — which has been named to the CRN Fast Growth 150 list for the last two consecutive years — expects to grow sales 40 percent this year, in no small part due to the strength of the economy.
Make no mistake about it, said Ahluwalia, tax reform legislation passed in December has resulted in economic boom times for the channel, leading to the strongest IT spending environment he has seen since founding his company seven years ago.
“For smaller companies like us the tax cut has been huge because [previously] so much of our free cash has gone toward covering our tax liability at the end of the year,” he said. “This has allowed us to increase major technology initiatives for next year. Whether you are C Corp. or an S Corp., this is putting money back into play that is being reinvested in the business. We are heavily into reinvestment mode.”
The Tax Cuts and Jobs Act, which went into effect Jan. 1, cut the corporate tax rate from 35 percent to 21 percent for large corporations and provided a 20 percent deduction for pass-through businesses like Aqueduct.
By Ahluwalia’s estimate, the tax reform has resulted in a 15 percent increase in customer IT spending. What’s more, the tax cut has allowed Aqueduct, No. 363 on the 2018 CRN Solution Provider 500, to add to its highly prized engineering talent with a 10 percent to 15 percent increase in new hires this year. “That’s pretty significant,” he said.
Specifically, Waltham Mass.-based Aqueduct, which has garnered praise from customers for its “100 percent” guarantee that all of its solutions will “perform as promised” or customers don’t pay, is making game-changing digital transformation bets with the cash savings from the tax cut. Those bets include deep investments in cloud-based omnichannel customer engagement solutions and major software-defined infrastructure initiatives that are driving customer-facing competitive advantages.
“Those investments are not going to materialize until 2019 or 2020, which means that effectively we should be able to continue to grow at a pretty aggressive rate,” said Ahluwalia. “At the same time, we are seeing our customers starting to make bets, which is leading to a bump in business.”
In fact, Ahluwalia is seeing robust increases in IT spending from customers in the greater Boston area who are also benefiting from lower tax rates. He calls it an economic “perfect storm” that is being driven by a talent pool fueled by some of the best universities and hospitals in the country.
“We have got a lot of biopharma [customers] that are leveraging a lot of the tax benefits to grow pretty heavily,” he said. “That has opened up a lot of services opportunities and cloud opportunities for us as they make investments in IT they may not normally have made. In many cases, these companies have more favorable tax rates now.”
Ahluwalia is not alone in his assessment that the channel is experiencing economic boom times. Solution providers on average are seeing a 20 percent increase in customer IT spending, according to the results of a survey of executives set to attend the 2018 Best of Breed Conference, an annual gathering of some of the country’s top solution providers hosted this month in Philadelphia by CRN parent The Channel Company.